Future of Money

Since the dawn of time, mankind has exchanged something of value to acquire something she considers valuable. We call this exchange commodity “money.” But money represents more than transactional currency. As Neurologist Antonio Damasio of the University of Southern California (Los Angeles) says, “Money represents the means of maintaining life and sustaining us as organisms in our world.”

But while its purpose may be constant, the form it takes is not. Money goes through upheavals periodically. Today’s cryptocurrency revolution -- fueled by the internet, online commerce, and virtual reality -- is not the first seismic shift.

Consider: our evolutionary needs are behind this revolution, beginning with our need to eat. Hence, money represents a kind of energy. In its early forms, commodities such as barley, cacao beans, cattle, and salt were values used in direct transactions and became words we use today: the word “salary” comes from the Latin word “salarium;” salt rations were used as a form of payment during the Roman Empire. Cowry shells, in use from 2000 BC until the 20th century, were used as a monetary unit whose worth was largely based on its beauty.

Today’s Financial Revolution

Fast-forward to the industrial age, and we see that money as a means of exchange has ceased to be an item of intrinsic worth – such as a gold bar; instead it is a symbolic item, representing an amount redeemable from an issuing governmental authority. Bank notes, paper money, today are not worth much in and of themselves; their value lies in the amount printed on their façades, backed by the promise of a government to pay. This is “fiat money,” an intrinsically worthless object or record widely accepted as a means of payment.

Fiat money is issued, distributed, and controlled by banks: central, retail, investment. And while banks have been vilified throughout history, today – given the rise of internet commerce – they are becoming irrelevant. “We have today the perfect storm for crypto to become mainstream,” says Min Teo, Co-Founder of Ethereal Ventures and former Managing Investments Partner & Current Advisor to a blockchain software company ConsenSys, created by QIVY (Vinci Energies). “The Federal Reserve is issuing ‘helicopter money,’ and while the banks are not paying for deposits, they’re still charging fees for every service because, after all, they have to show growth every quarter. And visiting a physical banking location doesn’t really work during times such as a pandemic. So the banking system has failed the customer because it’s not meeting their needs.”

Online shopping has shifted transactions away from cash. Digital payments and contactless payments increased significantly beginning in 2020, during the COVID-19 pandemic. Non-banking payment facilities such as PayPal and TransferWise proliferated, offering customers liberation from banking controls and giving digital currencies a new venue. According to Global Market Insights, Digital Payments Market size in terms of transaction value was valued at USD 8.4 trillion in 2022 and is anticipated to register a CAGR of 16.5% between 2023 and 2032.

We are on the footsteps of the biggest transformation in more than 60 years: the dollar is becoming digital,” says Alex Tapscott, Editor of The Financial Services Revolution and co-founder of the Blockchain Research Institute. “Fiat money will exist but will undergo another transformation, continually being reinvented; but ‘classic fiat’ is headed for obsolescence.”

What are Cryptocurrencies?

Cryptocurrencies are a digital medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Each transaction is recorded on a “block,” which are linked together in a perpetually-existing “blockchain.”

Crypto transactions are not only traceable in the block chain; they are instantaneous, so no delay in sending or receiving funds, even across borders. No need to go to a bank or even use a middleman – like a bank or other processor -- who will levy transaction fees. “Cryptocurrencies mitigate the need for a middleman and redistribute value” says Mara Schmiedt, CEO at Alluvial and former Head of Sales, Coinbase Cloud. “Cryptocurrencies are the money of the Internet, an open source to the world.”

And they are growing in value: market cap tripled in the last quarter of 2020. The total market cap of crypto today is more than $1,5-Trillion, and the top five account for 80% of that. There are more than 9,000 digital currencies on the global market as of 2023 (source: Statista.com), with the best-known being Bitcoin, Ethereum, Solana and XRP. All cryptocurrencies share three common characteristics:

• they are decentralized – they are not issued or controlled by a central authority, but as their supply is limited and their market cap is set by the issuer, their scarcity and therefore their value, is assured;
• they are divisible – spendable in increments and easily converted, unlike assets such as gold, thus enhancing their utility as a medium of financial exchange;
• they are open source – anyone can access the block chain to trace a transaction recorded therein.

But for all these benefits, there are some drawbacks: cryptocurrencies are for the most part classified as assets. “if you hold a crypto, it’s worth only face value,” points out Alejandro Neut, Lead Economist for the digital economy at Spain’s second largest bank, BBV. “Cryptos are volatile because they’re assets with short trading record, not currencies.”

Who is the Crypto User?

Given this unprecedented scenario, who actually is using cryptos today? Anecdotal evidence indicates the typical crypt user in the developed world is young and shares a love of freedom, low-key style, and aesthetics with his and her cohorts. They have disposable income and are eager to spend it using cryptos.

Recent research conducted by VISA globally in countries ranging from US, UK, Germany and France to Mexico, Indonesia, and Nigeria shows that 95% of mainstream consumers with income of at least $35,000 are aware of cryptos, and that awareness has increased significantly in just the last three years. Christine Lagarde, President of the European Central Bank (ECB), told the Financial Times already in 2020: “Europeans are increasingly turning to digital in the ways they spend, save, and invest.”

Digital currencies are moving from the edge to the mainstream: as of this writing, more than 575-million people (up from 432 million at the start of 2023) hold cryptos out of a global population of 8-billion. Some analysts predict that the number of crypto users will reach nearly one billion in 2024. (source: cointelegraph.com). So it’s not surprising, therefore, that banks would want a piece of this digital action. “Big banks and central banks already use digital clearing in back office transactions for efficiency and transparency,” says Neut. ”This could potentially hurt Visa and Master Card et al, as they make money providing clearance systems and payment services.” That is why both payment majors already collaborate with crypto specialists for joint cards such as Crypto.com Visa card.

Adoption is Increasing Globally

China’s central bank digital currency, the Digital Currency Electronic Payment (DCEP) or digital renminbi, has already conducted four million transactions totaling more than two billion Yuan ($300-Million USD) since its rollout in April, 2020, in Shenzhen, Suzhou, Chengdu, and Xiong’an. At the retail level, major state-owned Chinese banks are introducing digital payments for merchants and ordinary customers, such as ride-hailing giant Didi Chuxing. In July 2023, Bank of China, China Telecom, and China Unicom announced the joint launch of SIM card-based e-CNY (special wallets to store digital renminbi), which allow offline payments using the SIM's NFC function.

In the West, crypto adoption has largely depended on the use of stable coins – essentially cryptocurrencies backed by an established asset such as the USD or Euro. It’s not necessary to own a bank account or live in a particular geography to use stable coins, but they are issued by banks. The largest US bank, JPMorgan Chase, for example, has issued its own digital JPM Coin, linked to the USD at a 1:1 ratio, intended principally for its institutional banking and corporate clients. “If you make cryptos non-anonymous -- that is, by issuing stablecoins -- they could then be used as a substitute for deposits, and banks could use them in their traditional functions, such as making loans, long-term investments, etc.,” says BBV’s Neut. JPM Coin could be handling as much as $10 billion in daily transactions in 2025 or even 2024, according to the bank's Global Head of Financial Institution Payments Umar Farooq (source Bloomberg.com).

Cryptocurrencies have also opened the door for tech giants such as Facebook – with more than a billion users worldwide and an impressive balance sheet -- to flex their considerable and unbridled social, political and financial power the in financial arena. Libra was to be a Facebook-led synthetic currency backed by a basket of other currencies, but was put on hold following regulatory hearings in which the social media platform’s crypto proposal was basically accused of being too much like a bank.

According to BBV’s Neut, “The US regulatory authorities were not happy with the Libra idea. There were questions and accusations: ‘what’s the business plan behind this? Your business is data; you’ll use transaction info from buying and selling; what will Facebook do with this data?’ Consumer protection agencies went nuts.”

Facebook went back to the drawing board, ditched the currency basket idea, and came up with Diem, backed 1:1 against the USD. Eventually, the project closed down completely in March 2023. What it left us with, though, is an idea and a possibility of a global corporate digital currency. It might seem crazy for now but it is nothing more than an adaptation to digital times of something we already experienced in the 17th Century. Highly valued VOC coins were produced by the world’s first publicly traded multinational, Dutch East India Company, shortly called in Dutch VOC.

Not unexpectedly, in October, 2020 PayPal entered the crypto world: a new service enabling its customers to buy, hold, and sell crypto directly from their PayPal accounts, eventually making crypto available as a funding source for purchases from its 600 000 merchant network worldwide. As of June 2022, PayPal also allows users to withdraw their coins into third-party wallets for personal storage or wider use throughout the ecosystem, currently only available for US users.

But the company’s proprietary hold on the crypto it accepts and the transaction fees it charges (up to 1.8% fee) are contrary to the freedom, efficiency, and low-cost desired by crypto users, who might well prefer to access their own crypto from their digital wallets.

The Missing Piece

Thus far, what’s been missing from the crypto world is an efficient, inexpensive means of using digital currencies in real-world retail transactions. But retailers are getting on board fast: According to Coinmap.org, there are over 23,000 venues all over the globe where you can purchase goods and services using bitcoin, including tech giants Microsoft, AT&T, and Etsy, entertainment and gaming companies Twitch and XBox, travel companies Virgin Galactic and Expedia, luxury purveyors Tesla and Farfetch. One can even send kids to study at the European School of Management and Technology in Berlin using crypto.

The appetite from retailers is growing fast. Nearly 75% of retailers plan to accept either cryptocurrency or stablecoin payments within the next two years, according to a survey among 2,000 senior executives from the retail industry conducted by Deloitte titled “Merchants getting ready for crypto.”

The problem for retailers has been settlement: delays in payments and high transaction fees for using crypto. Up until now, the system has been fraught with frustration. “What will really drive adoption is ease of use for the consumer and ease of reconcilability for the merchant,” says Teo of Ethereal Ventures.

Omni-channel clearance systems such as Lunu Pay with its own in-store payment terminal, on-line widget and proprietary technology providing instant crypto-fiat conversion at the market’s attractive rate -- accept a variety of crypto. Customers pay in crypto and retailers have almost instant access to their funds in fiat via bank transfer. Transaction fees for merchants are lower than those used by traditional credit cards, while the customer pays no fee at all. And the Lunu Pay Terminal is capable of accepting credit cards such as Visa and MasterCard as well, thus consolidating a clutter of devices into one sleek, modern hand-held technological accessory.

Financial Inclusion

There is yet another population who would benefit from crypto adoption – a population without credit cards or indeed any banking services at all -- those whose indigenous economic and political systems are susceptible to devastating shocks such as runaway inflation or civil unrest.

If the digital realm can distribute the means of payment to individuals throughout the world, a billion people --formerly unbanked or otherwise sidelined and lacking access to financial services -- could gain a connection that allows upward mobility and integrates them into the world economy. ”Financial inclusion is one of the biggest problems in the world,” opines Alluvial’s Schmiedt. “This (unbanked) shadow economy pays massively for access to capital. Digital money, accessible through the Internet with affordable hardware would solve this very basic problem.” Continents such as Africa and South America are prime candidates, already adapted to digital commerce and communications. Unlike the West, they lack legacy infrastructure to overcome.

“More people in Africa have mobile phones than bank accounts,” says Ethereal Ventures’s Teo. “Having access to money digitally makes a tangible difference to people: it gives women independence, it gives transient populations like refugees a chance to get on their feet while still in transit, and it helps the unbanked in prosperous countries like the US. Providing modern-day financial services to those who don’t have them should be our first call.”

The real, global economy is being transformed. As billionaire investor Mike Novogratz, CEO of Galaxy Digital, said once, “It’s no longer a debate if crypto is a thing…if the blockchain is going to be part of the financial structure. It’s not ‘if,’ it’s ‘when.’

Min Teo adds,“ financial services are emotional, not just transactional – you want to look at a product and say ‘yeah, I really want to give you my money,’ not because there’s no option. Today there is a new digital choice for consumers. It’s not your father’s bank anymore.”